Let’s do a little stock market temperment quiz. I found this in an a series of articles about Warren Buffett that was published in U. S. News & World Report last summer:
…what if one stock, in particular, had seemed like a sure bet when you bought it last month. The company sells something everyone needs, is well managed, and has a consistent track record of growth—that is, until it missed Wall Street earnings expectations by a penny and got pounded down by 15 percent in a single day.
a) Sell it and curse yourself for buying it in the first place?
b) Sit tight and do nothing until you recover your loss, then sell?
c) Smile and buy more, sure that everyone else is dead wrong?
d) Study and reconfirm your assessment of the company, then smile and buy more?
I do very little individual stock picking. That said, I would probably go with “c” or “d” because I don’t usually let the stock market get to me. The author of the article went on to say that if you answered “d” you could possibly work for Warren Buffett’s Berkshire Hathaway.
Whether you buy individual stocks or invest in mutual funds through your company’s 401(k), you have to keep your emotions in check. If you don’t, you’ll find yourself making lots of mistakes.
I know these U. S. News articles are old, but I urge you to give it a read. There’s lots of good stuff there.